Securities Regulation Daily Corporation Finance staff updates interpretations on proxy rules and Schedules 14A and 14C
Friday, May 11, 2018

Corporation Finance staff updates interpretations on proxy rules and Schedules 14A and 14C

By John Filar Atwood

A company’s proposal to seek shareholder approval at the annual meeting to change its corporate name does not, by itself, require that company to file a preliminary proxy statement, according to the staff of the Division of Corporation Finance. The staff offered advice on this and other questions in an update to the compliance and disclosure interpretations (C&DIs) on the proxy rules and Schedules 14A and 14C. The new C&DIs replace the interpretations published in the manual of publicly available telephone interpretations and the March 1999 supplement to the telephone interpretations.

On the question of whether registrant proposing a name change is required to file a preliminary proxy statement, the staff pointed to Release No. 34-25217 from 1987. In that release the staff stated that the underlying purpose of the exclusions from the preliminary proxy filing requirement is to relieve registrants of unnecessary administrative burdens and preparation and processing costs associated with the filing and processing of proxy material that is currently subject to selective review procedures, but ordinarily is not selected for review in preliminary form. Consistent with that purpose, a registrant’s name change does not require the filing of a preliminary proxy, the staff stated.

Discretionary authority. The Division staff has permitted registrants to avoid filing proxy materials in preliminary form despite receipt of adequate advance notification of a non-Rule 14a-8 matter as long as the registrant disclosed in its proxy statement the nature of the matter and how the registrant intends to exercise discretionary authority if the matter was actually represented for a vote at the meeting. The staff clarified in the new C&DIs that a registrant may not rely on this position if it cannot properly exercise discretionary authority on the matter in accordance with Rule 14a-4(c)(2).

Under Rule 14a-4(b)(1), a proxy may confer discretionary authority with respect to matters as to which a choice has not been specified by the shareholder, so long as the form of proxy states in bold-faced type how the proxy holder will vote where no choice is specified. The staff advised that a soliciting party may cumulate votes among director nominees by simply indicating this in bold-faced type on the proxy card, provided that state law grants the proxy holder the authority to exercise discretion to cumulate votes and does not require separate shareholder approval with respect to cumulative voting.

Authorizing additional shares. The staff addressed a scenario where a registrant solicits its shareholders to approve the authorization of additional common shares for issuance in a public offering. The registrant could use the cash proceeds from the public offering as consideration for a recently announced acquisition of another company, but it has alternative means for fully financing the acquisition and may choose to use those alternative financing means instead. The staff advised that the proposal to authorize additional common shares would not "involve" the acquisition for purposes of Note A of Schedule 14A.

The staff noted that raising proceeds through a sale of common shares is not an integral part of the acquisition transaction because at the time the acquisition consideration is payable, the registrant has other means of fully financing the acquisition. The staff added that if the cash proceeds from the public offering are expected to be used to pay any material portion of the consideration for the acquisition, then Note A would apply.

Plan benefits table. The staff also stated in the C&DIs that if a registrant is required to disclose the New Plan Benefits Table called for under Item 10(a)(2) of Schedule 14A, it should list in the table all of the individuals and groups for which award and benefit information is required, even if the amount to be reported is zero. In the alternative, a registrant can choose to identify any individual or group for which the award and benefit information to be reported is zero through narrative disclosure that accompanies the New Plan Benefits Table, according to the staff.

In another substantive revision to its previous interpretations, the staff advised that a proxy statement seeking shareholder approval for the elimination of preemptive rights from a security involves a modification of that security for purposes of Item 12 of Schedule 14A. As a result, financial and other information would be required in the proxy statement to the extent required by Item 13 of Schedule 14A. The C&DIs also include several technical and non-substantive revisions to the proxy rules and Schedules 14A and 14C.

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